Jindal wanted it first, now Edwards pushes for state water chiller privatization despite a pair of unfavorable reports

It may not be as furtive as Sen. Neil Riser’s 2014 amendment to sneak a hefty retirement raise for State Police Superintendent Mike Edmonson through the legislature, but something doesn’t seem quite right about a request for proposals (RFP) due to be issued by the Division of Administration by the end of the month (Thursday).

And this time the legislature has nothing to do with it; curiously, the project was initiated by Bobby Jindal and continues to be pushed by John Bel Edwards despite two separate studies that have said it is a bad deal for the state.

A request for information (RFI) for a “public-private partnership related to the State of Louisiana’s Central Chilled Water Facilities” was issued by the Division of Administration on March 17, 2015. The Jindal administration as part of its privatization push, was exploring the feasibility of entering into an agreement whereby a private entity would take over operation of the facilities which provide chilled water to air-condition state buildings in the Capitol Complex and elsewhere.

The state currently operates two such facilities, one in South Baton Rouge and the other in North Baton Rouge.

Only two companies, Bostonia Group of Boston and Bernhard Energy of Baton Rouge, submitted proposals in May 2015 but on June 23, 2015, Glenn Frazier, director of the Office of State Buildings, issued a letter which said in part, “After thorough review of the two proposals by an evaluation committee, Bostonia Group’s proposal was rejected and Bernhard Energy was asked to present an oral presentation. After hearing Bernhard Energy’s oral presentation and reviewing there (sic) subsequent follow up information, the committee has determined that due to the exceptionally high cost, it is clearly not in the state’s best interest to enter into a public-private partnership with Bernhard for the proposed services.” OSB Review Team Report

Apparently not satisfied with that recommendation, the Jindal administration then entered into a $25,000 contract with Assaf, Simoneaux, Tauzin & Associates (AST) Engineering Consultants of Baton Rouge on October 20, 2015, for the “Evaluation and Feasibility Study” of Bernhard’s proposal.

The state currently owns all the equipment and piping for both plants. Bernhard proposed extending the piping to other non-state entities and to market the chilled water with 38 percent of the sales being credited to the state.

AST, in a June 29, 2016, letter to Bill Wilson of the Office of State Buildings (OSB), said the proposed 38 percent credit to the state “appears to be low given the fact that the state currently owns all the equipment and is producing and distributing the chilled water.”

Despite acknowledging that Bernhard had “tweaked” its initial offer to come up with a more attractive proposal, AST said the “adoption of this agreement would not be advantageous for the State of Louisiana in its current form.”

AST called the revised formula submitted by Bernhard “cumbersome,” adding that “Based on our assessment and analysis, we recommend the current response to the RFI not be accepted by the State of Louisiana as a final proposal/contract.” AST Review Team Report

Bernhard submitted four options: one calling for a 20-year contract, two for 30-year durations and the fourth for 99 years. Under terms of its proposal, Bernhard would pay the state cash up front, depending upon which option was agreed upon. Under Option One, the state would receive $9.1 million for the 20-year agreement. The state would receive $12 million under Option Two and $12 million under Option Three, each for a 30-year contract. For the 99-year agreement, the state would receive $14.5 million up front.

Bernhard would invest some $13 million in expanding the piping system in order to serve private entities in downtown Baton Rouge. The state, in turn, would purchase its chilled water from Bernhard Energy. Additionally, the state would continue to own all piping and equipment but would “retain the obligation to operate, maintain, repair, renew, and replace the Central Chilled Water Facilities (CCWF) including any improvements or new equipment installed by Bernhard.”

In an email exchange with the state, Bernhard was told, “The concept of having a State entity, i.e., Office of State Buildings contract with Bernhard Energy and then have the state pay for the services back to Bernhard Energy does not appear to be logical from the State’s perspective. This would additionally place a state entity (Office of State Buildings) serving both a private contractor at the same time as providing services to its State tenants. Doing so could would likely result in not providing the expected service levels to the agencies we serve and it (could) direct (sic) conflict with achieving the agency mission.” StateofLACCWF.BernhardResponses.12.19.15[1852].docx.0001

Bernhard’s response was immediate and significant in that the wording of the company’s response hinted that the entire RFP process may have been rigged to benefit Bernhard:

“Bernhard is confused by the response of the State on this item. During a meeting with Bernhard representatives on September 29, 2015, the State indicated that it could operate the facilities cheaper than Bernhard. To decrease the rates under the Thermal Services Agreement, Bernhard agreed to offer a proposal whereby it subcontracted the operation and maintenance of the facilities back to the State. If the State does not wish to have the operation and maintenance of the facilities subcontracted back to it, Bernhard can retain the operation and maintenance and the costs associated with the operation and maintenance of the facilities would be recovered through the rate structure previously proposed.

“In contrast, if the State does not wish to have Bernhard operate and maintain the facilities, which was, in large part the basis of the RFP, and it is unknown why the State would have issued the RFP, and allowed Bernhard and other respondents to expend substantial sums in pursuit of this project if the State had no intention of having a third party operate and maintain the facilities.”

But if you thought the project was dead, think again.

LouisianaVoice has obtained an email from Commissioner of Administration Jay Dardenne dated April 19 of this year in which it was made evident that the governor’s office wants the public-private partnership to become reality.

Here is that email:

I have assured the Gov that we will have the RFP on the street no later than May 31. My understanding, which I communicated to him, is that we anticipate that the statewide proposal (including Capitol Park and the DOA controlled properties across the state) will probably be the first one out of the chute based on the delays created by defects in the Southern proposal which has been sent back to the school. I want to make sure that we meet or beat the May 31 deadline. I know that everyone’s focus has been on the SFO (solicitation for offers) for the PM (prescription marijuana) (properly so) but this now needs to be a top priority. Please make sure your folks understand. Thanks. Jay (emphasis ours).

Jim Bernhard, who heads up Bernhard Energy, previously served as Chairman of the State Democratic Party and was mentioned as a possible candidate for governor in 2007. He built and headed the Shaw Group before it was sold to Chicago Brick & Iron (CB&I) a few years ago for $3 billion.

He and his assortment of companies have been major players in the state’s political field, contributing more than $85,000 to Gov. John Bel Edwards in 2015 and 2016 and $56,000 to former Gov. Kathleen Blanco in 2003. By contrast, campaign finance records show that he and his companies gave only $3,000 to Jindal in 2003 ($1,000) and 2007 ($2,000).

But his generosity to Blanco apparently paid huge dividends in the aftermath of Hurricane Katrina in 2005.

The Shaw Group was contracted to place tarpaulins over damaged roofs at a rate of $175 per square (one hundred square feet per square). That’s $175 for draping a ten-foot-by-ten-foot square blue tarpaulin over a damaged roof. Shaw in turn sub-contracted the work to a company called A-1 Construction at a cost of $75 a square. A-1 in turn subbed the work to Westcon Construction at $30 a square. Westcon eventually lined up the actual workers who placed the tarps at a cost of $2 a square.

Thus, the Shaw Group realized a net profit of $100 a square, A-1 made $45 dollars per square, and Westcon netted $28 dollars a square – all without ever placing the first sheet of tarpaulin. Between them, the three companies reaped profits of $173 per square after paying a paltry $2 per square. The real irony in the entire scenario was that the first three contractors – Shaw, A-1, and Westcon – didn’t even own the equipment necessary to perform tarping or debris hauling. By the time public outrage, spurred by media revelations of the fiasco, forced public bidding on tarping, forcing tarping prices down from the $3,000-plus range to $1,000, Shaw and friends had already pocketed some $300 million dollars.

The state threatened prosecution of those who it felt overcharged for a gallon of gasoline in Katrina’s aftermath but apparently looked the other way for more influential profiteers.

6 Responses

I’m very suspicious that there’s more than the usual rent-seeking patronage going on here. Why would the state lease the chillers? I don’t see any rationale for this. Don’t most houses and businesses own their own a/c systems?

If the state is going to privatize, why not just simply sell it, and become a customer, just as in electricity or gas?

I can’t help but feel that the only way to get rid of the constant corruption in this (or any other government) is to massively shrink the size and scope of the government. There’s simply too much money in too few hands with too much power to dole it out as they see fit – legally.

I also can’t help but question the viability of the state’s ethics training and implementation. I’ve always thought the IG was useless, as well as the mandatory annual ethics training for state employees.

I have come to learn that nobody will go against these companies like CB&I or Witt Associates which has been contracted by GOHSEP. I don’t even believe Jeff Landry would do it. It’s my belief—and I also believe you will come to learn—that these guys are above the law.

This is the kind of thing everybody hates (except those profiting one way or another), but also what everybody expects from the state of Louisiana and its leaders, and from government per se (see numerous defense contracts). I thought the costs of the IEM contract to manage the $1.7 federal “Restore Louisiana” money they can’t seem to give away was outrageous, but nobody else seemed to even blink at it and I have to wonder how many watchdog eyebrows this will raise other than yours…

Your example of the “trickle-down” tarping project would be hilarious if it was not true and it would appear Bernhard is about to make big bucks doing something the state could and should do much cheaper and simpler. Whether it is political payback or not, this is yet another example of why privatizing services the state can clearly provide cheaper is just plain stupid. I am convinced Jindal often did it in many cases to keep things muddled (as this complex agreement would certainly accomplish) and to find every penny he could in temporary money to prop up the budget.

Thanks for reporting this. I wish there was a way to stop it, but the train would seem to have left the station. As our POTUS would say, “This is YUUUUUUUGE,” but is another case where, even when reported, the public seems to yawn. That makes less sense than this proposal. But, as Jake Gittes is told at the end of the movie of the same name, “Forget it Jake, it’s Chinatown.”

P.S. I guess I’ve been gone from state government too long to know, but do you have any idea what this phrase in Dardenne’s email means?

“I know that everyone’s focus has been on the SFO for the PM (properly so)…”

Same song, different verse. This is so disappointing and very sad. The state has been operating those chillers forever with no problem. I understand the push to privatize under the previous administration, since jindal’s ultimate goal was to shovel as much state money as possible into the pockets of his friends. But why the rush to privatize now? It’s been proven time and again that state operations are more efficient and cost-effective than privately run. I failed to understand from your post how privatization or a so-called public-private partnership (which is BS) would benefit the (cash-strapped) state. Where is the rationale?

Sadly it appears to be the same old same old in so many areas of state government. Which proves the adage that in every election, the lean hogs kick the fat hogs away from the trough.

With rapid advances being made in power generation and the resultant effects this will have on uses of this power, including heating and cooling equipment, entering into any agreement to guarantee to produce and maintain a chilled water operation at then state-of-the-art methods for 20 years is ridiculous. Extending such a guarantee out to 30 and (heaven forbid) 99 years becomes lunacy. This proposal extends far beyond political payback. This falls in the realm of theft.

If Jon Bel is foolish enough to continue to support this outlandish proposal, it will ring as a death knell to his re-election bid while on the campaign trail. If I were advising a potential contributor to the next gubernatorial race, I’d advise against contributing to Jon Bel’s campaign if he continues with this foolhardy chilled water proposal.

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